Archive for the ‘Western DairyBusiness’ Category

“The difficulty lies not so much in developing new ideas as in escaping from the old ones.”

~John Maynard Keynes, Economist

Think about the title of this article for just a moment. I imagine that you are wondering where I am going with this line of thought… Well, I recently saw a quote from the star musician Madonna that said, “I spot a trend and then I get ahead of it.” Whether you are a huge fan of Madonna or not, you have to admit that she has done a fantastic job of re-creating her image over the last 20 years to continually stay on the leading edge of her industry. Have you?

Pursuing positive projects?

When your banker comes to your dairy operation once or twice a year, is he or she impressed with some of the new projects in which you are involved. Speaking from my prior experience as a lender, I was always excited to hear about the positive items that my customers were pursuing. After all, the bank likely plays a key role in ensuring your growth and success. So, how do we get to the point of being able to stay on the leading edge of change in our industry?

Initially, I believe the process requires that you attempt to identify the changes that are occurring around us. What are these top five variables that are moving in new directions? Please remember that they can be somewhat different for each dairy operation, but it is more likely that they really are only different in the actual impact they have.

For example, a drop in milk prices will certainly impact an operation that is highly leveraged more than one with little or no debt. However, these changes are still occurring for all of us. They are just like the law of gravity. You can jump off the 10th story of a building and exclaim, “I don’t believe in gravity,” all the way to the ground, but it won’t change the final outcome, or the impact of gravitational forces!

What are the most important trends and how do they impact your dairy?

Here are a few to consider:

1.) Feed Prices in the future – Where will they be headed over the next 3, 6 and 12 months? How about over the next five years? Most important, what will the impact of this be on your operation and how do you plan for a more successful outcome?

2.) Short Term Milk Prices – They are clearly trending upward as I write this article, but how do you take advantage of this trend? Should you lock prices in now or at some date in the near future?

3.) Long Term Milk Prices – How do you ensure that the consumer gets a great product at a reasonable price, but not while watching you go broke? Given those two factors, which are somewhat in conflict with each other, should you join a coalition of dairy producers such as the National Dairy Producers Organization? Yes!

4.) Future Financing – This is an area of great concern to me. Will lenders be there for producers in the future? Following the financial fallout of 2008, they have been overburdened with the “great government fix,” characterized by excessive regulation and bank auditors who believe the entire world revolves around them… Regardless, what will these trends in financing mean to your business? Now is the time to think about it, not three years from now when you and entire industry may have their backs “against the wall” financially.

5.) Interest Rates – In the event that you are able to borrow money in the future, and I do believe that you will be able to, what are the trends and the factors that affect interest rates? How can you capitalize on these?

6.) Environmental Issues – What is the next set of regulations that could surface? Are you prepared for them? Can you afford them? Ignore them at your own peril. Doesn’t it make sense to be thinking about what they might be?

Moving forward

As you move forward in your business, think back to some of the trends in the past that you have taken advantage of. What were they and how do you capitalize on them? For you to continue to succeed, what new trends do you need to recognize? How can you stay “ahead of the curve” with them? What are your most successful colleagues or neighbors doing? Remember, you don’t have to have all of the answers to these questions. You just need to take the time to think about them and if you cannot figure one of them out, talk to others who can or who already have.

If I can help you as you think about developing a better future, please let me know or visit my website at www.success-strategies.com and look at our free Success Tips and Videos sections. Either way, please set aside some time to consider these trends. What’s next? It’s your move.

FYI

■John Ellsworth of Modesto, Calif., is a consultant with the financial and strategic consulting firm Success Strategies. He can be reached at 209-988-8960, or by e-mail: john@success-strategies.com.

It’s never too early to start planning the management of your 2011 taxable income. In December of 2010, Congress passed a two year extension of the Bush-Era tax cuts giving guidance for 2011 and 2012 and providing an opportunity to take advantage of lower tax brackets and favorable capital gains rates.

Hopefully your 2010 tax returns were completed without any surprises. While 2010 was a much better year income wise than 2009, many dairymen used their free cash flow to catch up on payables and pay down bank debt. With good demand worldwide for dairy products, prices are expected to stay strong this year. Managing your taxable income will be crucial.

Farmers – a privileged group

In regards to the tax code, farmers are a privileged group granted the unique ability to legally prepay expenses and defer income. Because of this, many farmers at the end of the year, even in bad years, may find themselves with an unexpected large amount of taxable income to deal with. Over the next couple of years, managing these deferrals will become increasingly important. This is not only due to the fact that tax rates are expected to increase in 2013, but also due to the availability of credit, i.e. prepay and deferral loans.

So what can we do to manage taxable income to keep deferrals from snow balling? Let’s start with a discussion about long term capital gains. Many dairymen choose not to pay any tax at the end of the year. Therefore, they prepay or defer enough to get taxable income to zero. Long term capital gains rates, the rate you pay on the majority of your cull cow income, is set at 15% for the next two years, scheduled to go to 20% in 2013. Deferring out of this income not only precludes you from taking advantage of this low rate, it also consumes funds that could be used in the following year to pay down income that could be taxed at effective rates above 40%.

Carry forwards

Many of you may have large net operating loss carry forwards going into 2011. It may be to your advantage to make use of these as well. Tax rates on Self Employment income have been lowered for 2011. The employee portion of the OASDI tax has gone from 6.2% to 4.2% (employer portion remains at 6.2%). This means on the first $106,800 of income you will pay 10.4% instead of 12.4%. Keep in mind the Medicare portion of the tax remains at 2.9% on all S/E income. Depending on the amount of your NOL carry forwards, you may be able to offset the rest of your taxable income by using them. Do consult your tax advisor on using NOL’s as there may be limitations on their use resulting from the new farm bill and for state purposes such as in California.

Bonus depreciation increased

Last, but definitely not least, the 2010 Tax Relief Act increases the 50% bonus depreciation to 100% for qualifying new fixed asset purchases in 2011. For assets purchased and placed in service from January 1, 2012 through Dec. 31, 2013, the bonus amount reverts back to 50%. Bonus depreciation provides a couple advantages over Section 179 expensing. There are no investment or income limitations using bonus depreciation. Section 179 expensing for 2011 is limited in amount to $500,000 and begins phasing out when investments exceed $2,000,000. In 2012, these amounts adjust to $125,000 and phase outs begin when investments exceed $500,000. Bonus depreciation, as opposed to Section 179, can also be used to create a loss if needed to offset income from other sources. Allowable Section 179 expensing amounts for states do not always conform to federal and will vary from state to state.

Cash flow impact

When taking advantage of bonus and Section 179 depreciation on new assets, be sure to first consider the necessity of your purchase and how it may affect your cash flow. There are still opportunities to take advantage of favorable financing on equipment purchases. Make certain that your bank concurs with the reasons these purchases are necessary and their effects on free cash flow that might otherwise be used to improve your position with the bank.

While we can all breath a sigh of relief for now that congress has decided to keep tax rates from reverting back to increased amounts, they won’t stay at these levels forever. The extensions are set to expire Jan. 1, 2013, not surprising right at the end of the next presidential election. Use the time given in the next two years wisely.

Talk to banker and CPA

Take advantage of lower rates by budgeting and managing to pay tax at lower rates. Make sure your bank is willing to advance the funds necessary at the end of the year to allow you to manage your taxable income and consult with your CPA for tax planning to avoid any unpleasant surprises that may have escaped consideration.

The National Dairy Producers Organization Inc. held an official signing of their “Contract with Producers” during their first annual meeting at the World Ag Expo in Tulare, Calif. Feb. 8-10.

Broadcast on a national conference call, the meeting included introduction of the organization’s board of directors. Chairman Bill Rowell addressed the purpose of the grassroots organization and the recently released “Contract with Producers.” “Now it the time to stand up and speak for ourselves,” he said.

Vice chair Paul Rozwadowski urged dairy producers to, “Quit letting everyone dictate to us how we’re going to get paid. We can fix this ourselves.”

Since the national meeting, several statewide meetings have spurred continued interest and communication with producers in New York, Pennsylvania and Virginia.

The National Dairy Producers Organization is a producer-led organization whose efforts aim to improve the price of milk to U.S. dairy producers and remove extreme volatility in the dairy industry. For more information, visit www.nationaldairyproducers.org; e-mail: info@nationaldairyproducers.org; or phone: 800-364-4894.

Starting in 2011, the somatic cell count (SCC) in bulk tank milk (BTM) must be less than 400,000 cells/ml for milk or milk products exported to the European Union (EU). Most milk in California is marketed by cooperatives, and nearly all of them or their customers are exporting milk to the EU. This means all dairies are ultimately affected. How difficult is it to achieve SCC less than 400,000 and are we up to the challenge?

Figure 1

What influences BTM SCC levels?

We summarized BTM data from nearly 700 dairies during a ten-year period from 2000 to 2009. There is a seasonal pattern of SCC in California – highest in winter, lowest in spring and fall, and up slightly in mid-summer (Figure 1). This pattern appears to be related to weather conditions. Highest SCC in winter reflects wet conditions in corrals during the brief rainy season. In most areas there is little rain from April to October. Cows are cleaner in dry environments, keeping SCC low. So why does SCC rise in summer? Cows seek relief from intense heat in summer. They crowd under shades, creating moisture and high bacterial loads where they rest. Water from misters used for cooling may drift onto free stalls or corrals contributing to higher moisture – and higher SCC.

Figure 2 shows SCC by year. There is a trend for lower SCC over the 10-year period. The year 2005 is an exception. We speculate higher SCC that year may be attributed to very high milk prices in 2004 and 2005. Dairy producers may have kept cows in the herd that should have been culled in order to ship as much milk as possible.

Figure 2.

If we blame high milk prices for higher SCC in 2005, then how do we explain 2007, when milk prices were also high? Limits on milk production by dairy cooperatives, as well as new environmental regulations motivated dairies to cull heavily, resulting in lower SCC. Persistent constraints on expansion and economic crisis in the dairy sector have contributed to a continued trend for lower SCC, under 200,000 in 2009.

How does SCC relate to milk yield and reproductive performance?

To evaluate the relationship of SCC with various herd management parameters, we summarized DHIA data for California herds in 2009. Figure 3 shows milk yield per cow for herds in four SCC categories. Herds with the lowest SCC had 2357 lbs. more milk per cow than those over 250,000, and 4170 lbs. more than those over 400,000 SCC! Milk yield goes down when SCC goes up, a fact that has been known for decades. Figure 4 shows calving interval (CI) for the same four SCC categories. Again, we see that herds with low SCC perform much better than those with higher SCC. The CI for the lowest SCC group is 1.75 months shorter than the CI for herds over 400,000 SCC. This is no surprise – research has shown mastitis reduces reproductive performance.

Figure 3

What are the implications for high SCC herds?

Rigorous regulatory standards and quality bonuses (or penalties) have motivated most producers to keep SCC low for years. The percentage of dairies with SCC over 400,000 is only 3% when we look at 12 month averages from dairy cooperative BTM samples or the DHIA rolling herd average. A greater number will exceed this level for a day, a week, a month or longer. Figure 5 shows the % of herds from October – 2008 to September – 2009 that exceeded 400,000 SCC in BTM on at least one occasion. In January, over 25% of herds had a high SCC tank. Clearly the rainy season is the time of highest risk.

Dairies over 400,000 SCC will face stiff penalties for poor quality, as well as higher costs for segregating and marketing their milk separately from milk that will be exported. They could even risk losing a home for their milk.

Figure 4

How can you keep SCC low?

Many management practices are important for maintaining a low SCC. The overwhelming evidence from California BTM data showing a connection between winter season and elevated SCC strongly suggests that housing management should be your first priority. Prepare for winter. Get bedding ready for the first big rain event. Dry lots (open corrals) are not dry in winter, and cows need a dry place to lie down. Wet, sloppy conditions result in filthy cows and you simply cannot wash your way out of high SCC. Elevated SCC in milk is an indication of inflammation or mastitis. Bacteria that cause these conditions thrive in crowded, dirty housing areas. Reduce the risk by careful grooming of corrals and free stalls to provide dry conditions so cows stay clean – in winter and summer. High quality, low SCC milk is achievable – but low moisture housing and clean cows are essential. Healthier, more productive cows and increased profits will reward you for the effort.

Figure 5

How does SCC in California compare to other areas of the US?

Every year the US Department of Agriculture monitors bulk tank SCC in federal milk marketing orders. California is not included in this data because it is not in a federal marketing order. We plotted our California SCC data with the USDA data from several Western States from 2001 to 2009. California’s milk has been “the best in the West” for the last few years (Figure 6).

Conservation tillage conference March 9-11

California’s Conservation Tillage and Cropping Systems Workgroup will present educational tours and programs at three locations in California March 9-11 to convey information on innovative conservation tillage crop production systems that are being developed in irrigated regions of South Dakota, Nebraska, Colorado and Washington.

In addition to sharing information about the conservation cropping systems in these states, the speakers will discuss how the principles and practices can be implemented on California farms.

The first conference will be held March 9 at UC Davis. The second meeting convenes on March 10 at the SCE Ag-TAC facility in Tulare and continues in the afternoon with tours of three Central Valley farms. The final session is March 11 at the UC West Side Research and Extension Center in Five Points. The presentations at the three locations will be the same. There is no registration fee.

The three featured speakers, all national leaders in the practice of conservation tillage, are:

• Dwayne Beck, manager of the Dakota Lakes Research Farm in Pierre, South Dakota. Beck has been inducted into South Dakota’s Hall of Fame for introducing cost-saving conservation tillage practices to the region’s agricultural industry when, in the early 1990s, farms were closing due to a lack of economic viability.

• Mike Peterson, retired USDA NRCS Conservationist and currently the California precision tillage specialist for Orthman Mfg. Throughout his career, Peterson has researched and developed information on strip-till approaches.

• Andy McGuire, cropping systems adviser with Washington State University in Moses Lake, Washington. McGuire has been working to evaluate and develop high-residue cropping systems for the irrigated crops of the Central Washington region.

“The main reason we invited these out-of-state experts is to learn how the conservation tillage systems they have developed relate to California,” said Jeff Mitchell, UC Davis Cooperative Extension cropping systems specialist and coordinator of the conference. “All of them come from areas where farmers practice irrigated agriculture. We are planning to very thoroughly and thoughtfully consider with them, through a series of dialogues and discussion, the relevance and application of their work on farms in California.”

Conservation agriculture systems reduce overall tillage or soil disturbance, maintain surface residues, seek make production systems more efficient, and reduce costs. Speakers will address the integrated management of the conservation production systems.

For additional information on these conferences see the Conservation Tillage and Cropping Systems Workgroup website or contact Mitchell at mitchell@uckac.edu, 559-646-6565.

Dairy Herdsman Short Course set April 26-28

The University of California Cooperative Extension in Fresno County is hosting its 2011 Dairy Herdsman Short Course April 26-28 in Tulare. On-line registration is now open for the course to be held at the Consumer Education Pavilion at the Veterinary Medicine Teaching and Research Center (VMTRC), 18830 Road 112.

The dairy herdsman short course is designed for working dairy employees. Its purpose is to provide the people who do the actual work on the dairy the opportunity to receive information about the latest technology and training in all aspects of dairy management.

Personnel from University of California Cooperative Extension, UC School of Veterinary Medicine, and California State University-Fresno will assist in instruction. Simultaneous translation will be available at the sessions to assist Spanish-speaking attendees.

The seminar will consist of morning classroom teaching with afternoons providing hands-on training. Notebooks with written handouts will be provided to each participant.

Registration fee for the short course is $280. Companies and/or dairies with more than one participant will be $280 for the first participant and $260 thereafter. Students will be charged $220. This fee includes a notebook with hand-outs, lunch, plus short course shirt. Pre-registration is required.No registration at the door will be accepted. Enrollment in the short course will be limited to 40 participants. This limit is set to provide personalized teaching and hands on training. Acceptance will be on a first come, first serve basis. All money will be returned in full for those not accepted. You can register online at http://ucanr.org/2011herdsmanshortcourse.

If you need further information please contact Gerald Higginbotham, dairy advisor, at 559-456-7558.

CV Water Board sends out 60 monitoring well notices to area dairies

The Central Valley Water Board has sent out letters to approximately 60 dairies recently asking them to install monitoring wells as required by the WDR adopted in 2007.

Letters were not sent to dairies that are members of the Central Valley Dairy Representative Monitoring Program (CVDRMP).

“The benefits of CVDRMP membership are already accruing to those who joined the coalition,” said Paul Sousa, Western United Dairymen’s environmental specialist. The WUD board of directors endorsed the program last December. The purpose of the program is to significantly reduce regulatory costs for member dairies by administering a representative groundwater monitoring program. The letter sent in late January is different from previous letters sent to dairies asking them to install monitoring wells because this letter gives dairies the option of installing their own monitoring wells or joining the coalition.

“If you have not yet joined the coalition, whether or not you got a letter, you can contact your WUD field representative for the forms and assistance in completing the forms,” noted Sousa. However, there is a late fee for signing up after the deadline. WUD members who have questions about the letters and the well monitoring program are encouraged to contact their local WUD field representative.

Rubes cartoonist will entertain at Western United Dairymen conference

Leigh Rubin, creator of the syndicated cartoon “Rubes,” will be the evening banquet speaker at Western United Dairymen’s annual convention on Thursday, March 17 at the Visalia Convention Center.

Leigh began his cartooning career in 1978 by establishing his own greeting card company, Rubes Publications. His first cartoon collection, the popular Notable Quotes musical cartoons, was published in 1981.

Rubes, Leigh’s syndicated cartoon, began in 1984, and the first paperback collection of Rubes was published in late 1988. His most recent cartoon collection, The Wild and Twisted World of Rubes celebrates 25 years of cartoon craziness. Originally self-syndicated, Rubes is now distributed by Creators Syndicate to more than 400 newspapers worldwide.

AJCA names 40 to Jersey Youth Academy in Ohio

REYNOLDSBURG, Ohio, – David Chamberlain, president of the American Jersey Cattle Association, today announced the 40-member class for the second Jersey Youth Academy, July 17 to 22 in Columbus, Ohio.

“Building upon AJCA programs initiated over 50 years ago, the Jersey Youth Academy is an in-depth educational program focused specifically on the Jersey cow and the Jersey business,” Chamberlain explained. “At the same time, Academy challenges its participants to explore the broad range of career opportunities involving Jerseys and the dairy industry.

“These 40 young people from 17 states exemplify the many talented, interested Jersey youth in the United States that we want to encourage towards careers in the Jersey dairy business.”

The participants in the second Jersey Youth academy from the West will be:

Selection was based on merit, motivation and preparation for the program as reflected in the written application and goal statement. Applications were reviewed by a committee appointed by Chamberlain and chaired by AJCA Director James Quist. All program costs, including round-trip transportation for participants, will be paid by the Academy.

The 2011 keynote address will be given by James Ahlem, vice-chair of Dairy Management Inc. and past-President of National All-Jersey Inc.

A highlight of the 2011 program will be an expanded “Meet the Deans” program, where the young people will meet leaders from the Jersey community to gain their unique insights about the future of the dairy business with a specific focus on the Jersey cow.

Other confirmed speakers are Calvin Covington, former CEO of Southeast Milk Inc. and the USJersey organizations; Stan Erwine, Vice President of Producer Relations with Dairy Management Inc., and Francis Fluharty, Research Associate Professor, Ohio State University, and member of the AJCC Research Foundation advisory committee.

Budge crowned 2011 Oregon Dairy Princess-Ambassador

Jessica Budge, representing Clackamas County, was crowned the 2011 Oregon Dairy Princess-Ambassador during ceremonies at the 52nd Annual Coronation Banquet hosted by the Oregon Dairy Women.

Ms. Budge was crowned by outgoing 2010 Oregon Dairy Princess-Ambassador, Hanna Emerson, to the theme “Road Trip” amid more than 300 guests and four other Oregon County Princess-Ambassador finalists. The finalists were evaluated by a three judge panel over the course of two days. In addition to Saturday evening’s onstage personal interview and 4 minute dairy related speech, the judges conducted personal interviews, evaluated an impromptu speech, creative commercial for a dairy product, and a mock classroom presentation.

Ms. Budge, 19, is a graduate of Sherwood High School and is currently attending Oregon State University, Class of 2014. She plans to obtain a degree in agriculture communications, with a goal to work in the public relations field. Her parents are Rebecca and Joseph Budge. While in high school, Ms. Budge won many 4-H and FFA awards with her dairy animals. In addition, she was a member of the National Honor Society and has been active in volunteer activities for her community.

She is looking forward to the opportunity to inform and educate the public about the dairy industry. She will spend the next year traveling statewide attending fairs, town meetings and public events as a representative of Oregon’s dairy farmers. She will spend much of her reign in Oregon elementary schools delivering educational presentations about life on a dairy farm and the nutritional benefits of consuming dairy products.

Upon being crowned, Ms. Budge received more than $1,600 in scholarships, and will receive additional scholarships at the end of her reign. Outgoing princess, Hanna Emerson, was awarded more than $11,000 in scholarships for her year dedicated to the Oregon dairy industry.

Rebecca Thomas, representing Washington County was named First Alternate Oregon Dairy Princess-Ambassador. Carly Hartenstein, representing Marion County, received the Congeniality Award. Other candidates for the 2011 competition were: Amanda Worman representing Columbia County and Emily Whalen representing Tillamook County.

National DHIA awards scholarships to 24 students

VERONA, Wis. – The National Dairy Herd Information Association (DHIA) Scholarship Committee selected 24 high school seniors and college students as recipients of $750 scholarships. Among them was Briar Jeg of Chebalis, Wash.

Judges evaluated applicants on scholastic achievements, leadership in school and community activities, and responses to DHI- and career-related questions. To be eligible for a National DHIA scholarship, applicants must be a family member or employee of a herd on DHI test, a family member of a DHI employee, or an employee of a DHI affiliate. The DHI affiliate for the herd or affiliate employee must be a National DHIA member.

This year marks the third consecutive year for awarding a scholarship in memory of Joe Drexler, who worked for NorthStar Cooperative DHI Services. NorthStar members and employees, friends and family contributed more than $8,000 to establish this scholarship fund.

Money generated from the annual National DHIA Scholarship Auction primarily funds the organization’s scholarship program. Investments and donations also help build the fund. To make a donation to the fund, contact National DHIA Scholarship Committee Chair Barb Roth at 616-897-7435, or roth250@ix.netcom.com; or National DHIA communications and events manager JoDee Sattler at 608-848-6455, ext. 112, or jdsattler@dhia.org.

Virtus Nutrition launches first iPad dairy app

CORCORAN, Calif. – Virtus Nutrition has launched the Omega Value Calculator, the first iPad app designed specifically for the dairy industry. The free app hosts a wealth of information on omega fatty acid technology for dairy producers, nutritionists, veterinarians, and others interested in projecting potential returns on feeding a modern dairy diet that is accurately balanced with the proper amount of Omega-3s and Omega-6s at the right stage of lactation.

Virtus Nutrition has developed this app to help producers make more rigorously informed buying decisions about the inclusion of timed and balanced Omegas in their dairy diets and to provide a mobile reference hub of performance data, both at the university and on the dairy.

The application, available free through Virtus Nutrition and iTunes, is designed to support progressive dairy professionals interested in gathering nutrition information in new ways and using it to chart a more stable and profitable business course.

“In the dairy industry today, many things are out of our control and margins are squeezed. Producers need to take an offensive stance by leveraging all advantages available,” said Matt Swanson, owner of Virtus Nutrition. “Omega Nutrition technology is exactly the tool the industry is seeking. With the new Virtus iPad app, leading edge solutions to enhanced profitability are just a touch away.”

This app is the latest example of a continuing effort by Virtus Nutrition to provide practical, cutting edge technology solutions for the dairy industry. The way producers are accessing information is rapidly changing and the new iPad app is an innovative, interactive mobile platform that gives producers more control with decision making tools to improve the profitability of their dairies.

The new app includes:

1) The Omega Value CalculatorTM to compute the projected return on investment from feeding a diet that is balanced with the right levels of omega-3s and omega-6s and able to deliver them at the right time in the right place;

2) Current university and field research on omega fatty acid nutrition, including research on Virtus Nutrition’s Prequel 21 with omega-6s and StrataG with EPA and DHA omega-3s;

3) Information on the Omega Nutrition Solution program by Virtus Nutrition and a locater tool to assist users in contacting their local Virtus Nutrition representative for additional Omega product information and personal support for the Omega Value Calculator.

Funding reason for delay in Idaho Livestock, Enviro Studies Center

JEROME, Idaho – Plans to build the proposed Idaho National Center for Livestock and Environmental Studies are still in the works but the project has been crippled — and delayed indefinitely — by the economy.

That was part of the message presented by Rick Naerebout, of the Idaho Dairymen’s Association, to members of the Jerome Chamber of Commerce during the organization’s monthly meeting recently.

“Without the funding, we can’t move forward,” Naerebout told the Times-News. “We still are very committed to the project and plan on seeing it through.”

Naerebout told the chamber a possible site in Jerome had been identified but said they are waiting on the University of Idaho, a project partner.

“It’s just taken a lot longer than originally thought,” he said.

Although the University of Idaho’s College of Agriculture and Life Sciences was scouting possible center sites in southern Idaho in October, Rich Garber, the university’s director of Industry and Government Relations, said the school was waiting for property values to correct.

The university had planned on using land sale proceeds to help fulfill its $10 million pledge.

Simply put, the university just doesn’t have the money to allocate, although Garber said it looks forward to the day when the center is built.

The center, expected to cost upwards of $35 million to build, would replicate existing Idaho dairies, Naerebout said, with about 1,500 milk cows.

The center also will feature several hundred head of rangeland cattle and be used for interdisciplinary research, education and outreach, with a partnership between the University of Idaho, state and private industries. The center is to be jointly funded, Naerebout said, with the IDA pledging $5 million, paid over several years.

Naerebout said it is IDA’s intention for the foundation to be an ongoing financial supporter of the research center.

As a dairy producer, you operate in a much broader and complex world than did your parents or grandparents. To be successful in your business today, dairy producers, through their investment in the dairy checkoff, must work with and through the dairy industry to grow sales by identifying common goals and building on producer investments.

This approach, working through the Innovation Center, benefits dairy producers because it provides the opportunity to influence the supply chain and the marketplace – by sharing knowledge and insights that affects how the industry processes, packages and promotes dairy products.

The Innovation Center is not a physical entity. Rather, it is an industrywide forum that allows a cross-section of the dairy industry – from farm to fridge – to work together to foster innovation and give consumers more of what they want, when and where they want it.

Already, the Innovation Center has engaged more than 180 companies and organizations, and more than 500 people, to address barriers and opportunities pre-competitively to protect and grow dairy sales.

Here are some examples to date of how the Innovation Center is helping the industry work together:

• Consumer Confidence: The Consumer Confidence Committee has completed quantitative research of consistent messages that reinforce consumer trust and confidence in dairy’s health and wellness, environmental stewardship, animal care, community, innovation and food safety. Results are being packaged for co-ops and processors to use in marketing and communications to promote more dairy sales. In 2011, we will start a proactive campaign to activate an army of ambassadors through the dairy marketing chain to promote dairy’s image with the public.

• Food Safety: This industry-led Food Safety Task Force, comprised of 24 senior executives and content experts from 11 processors and co-ops, assessed in-plant risks and vulnerabilities. It also built a plan to establish uniform pathogen control standards, auditing practices and industry and supplier education and training. Such efforts will reduce financial/business risk, maintain consumer confidence and create easily adoptable practices across all U.S. dairy and ingredient processors.

• Food Retailer Engagement: The Research and Insights Committee is working with eight grocery store chains on new strategies for improving dairy innovation and merchandising to drive increased sales. The retailers will do store testing of strategies that deal with “meal solutions” for shoppers.

• Comprehensive Business Case: The Research and Insights Committee has used comprehensive product, nutrition and consumer research to guide the industry to new growth opportunities related to: the Hispanic market, lactose intolerance, snacking, “dairy aisle reinvention” in grocery stores, and reduced sodium in cheese. This work has already helped industry leaders expand product lines and make company acquisitions that can lead to additional sales for the industry. New growth opportunities in 2011 include breakfast and sweeteners.

• Cheese and Sodium: The Health and Wellness Committee is working with more than 50 industry players on key “pre-competitive” barriers to reducing sodium in dairy products without sacrificing consumer satisfaction and product quality. The “action plan” for 2011 includes thought leader education on the role of sodium in cheese-making, a vendor solution for rapid-testing of sodium levels, and an industry-wide approach to assuring quality and safety in processing cheese with less sodium.

• Flavored Milk: In association with MilkPEP and IDFA, the Health and Wellness Committee has brought together dairy industry marketers, DMI and state and regional dairy promotion representatives, school foodservice directors and nutrition professionals to identify the challenges that drive schools to consider flavored milk bans, and action plans that can be used locally.

• Promoting the Positive: Based on thorough consumer research, new marketing strategies, messages and communications tools are being made available to dairy marketers. To date, more than a dozen dairy brands – including Kemp’s, Dean Foods, Kraft, Hood, Anderson Erickson, LALA, and Shamrock – are promoting dairy’s positive health benefits, such as multiple nutrients and protein, in their marketing efforts.

• Sustainability: The Innovation Center conducted the first national life cycle assessment (LCA) for fluid milk, advancing a science-based approach recognized as “best practice” around the world. This work has given the dairy industry the data it needs to help tell its story and set the record straight regarding dairy’s impact on greenhouse gas emissions. The study establishes a baseline for the U.S. dairy industry to use in demonstrating continued progress in reducing its carbon footprint. The Innovation Center is raising $1.6 million in outside funds to implement 10 greenhouse gas reduction projects throughout the value chain. Other studies are underway, including an LCA for cheese.

• Globalization: The landmark Bain study has served as a critical strategic guide for the U.S. industry to address the impacts of globalization on U.S. domestic and international trade and move U.S. dairy farther along the path of being a consistent global supplier. The study was aimed at addressing fundamental barriers to U.S. global competitiveness, as well as taking advantage of an anticipated shortfall of global supply. Efforts in this area include dairy pricing reform, volatility risk management, customer product specifications, net-export benefit trade treaties, and more competitive quality traceability systems.

• Communications: The Innovation Center has created a password-protected web site at usdairy.com to allow secure sharing of pre-competitive science, insights and information.

Through the combined efforts of cooperatives, processors, manufacturers and other businesses, the industry has contributed more than $7 million in donated time to the Innovation Center to help advance dairy producer priorities in the marketplace. That’s just one indicator of the increasing unity that is forming to keep the dairy industry strong and secure, assuring a continued home for the milk you work so hard to produce. I encourage you to let me know your thoughts as we continue to work together to grow the market.

FYI

■Tom Gallagher is chief executive officer of Dairy Management Inc. (DMI), the domestic and international planning and management organization that works to increase sales of and demand for U.S.-produced dairy products and ingredients on behalf of America’s dairy producers. For more information on dairy checkoff programs, visit www.dairycheckoff.com.

Nationally, organic milk accounts for 1.5% of the milk produced in this country based on results of the 2008 Organic Production Survey. This in-depth study conducted by the National Agricultural Statistics Service of the U.S. Department of Agriculture was a follow-up to the 2007 Census of Agriculture.

Organic vs. Conventional

In 2008, Texas ranked 7th in milk production in the nation; however its organic production was 3rd in the nation. Although producers selling organic milk in Texas received nearly $9.77/cwt. more than their conventional counterparts, production per cow was reduced. Based on the number of cows and the total pounds of milk produced, the annual production was calculated at 15,071 pounds of milk/cow from the organic herds compared to 21,040 pounds of milk/cow under conventional systems (Table 1).

In 2008, Texas ranked 7th in milk production in the nation; however its organic production was 3rd in the nation.

This means that approximately $4,290 per cow of gross income was generated from the production of each organic cow, which is greater than the $3,934 per cow of gross income from each conventionally managed cow. Production expenses are not readily available for the organic herds.

Grain and forage commodities were included in the survey. Total quantities of the products and the value of the products sold off the farm were presented; however the quantity used on the farm was not given.

Consumer demand has driven the organic milk production market. Each month Federal milk order market administrators survey retail milk prices for selected cities during the first 10 days of the month. From this information, a simple U.S. average, as well as an average by city, is published. The retail milk prices for whole milk and 2% milk from 2008 to 2010 are presented in Table 2 for Dallas and the U.S. Note that the organic milk is priced in half gallons.

Retail price for milk in Dallas and across the U.S.

Providing consumers a choice

Dairy producers continue to work to provide a quality product to the consumer. Those that have chosen to invest their time and effort in organic production are providing consumers with the choice of foregoing technological advances in the production of their food. These producers have different costs of production, management issues and returns; but are an integral part of the dairy industry in Texas.

It’s no secret we live in a world wrapped up in regulatory red tape. In fact, agriculture in general, and dairy specifically, can’t get things done in a timely manner anymore. Ask a dairy producer, who just jumped through a myriad of regulatory hoops over the past four or five years in his quest to build a new dairy, how stressful and expensive that venture can be.

Some states are more “welcoming” than others. California state regulatory agencies make it almost impossible to get the job done before a middle-aged dairyman reaches retirement age. Texas, on the other hand, makes the permitting and construction process about as painless as you can find. Not that they don’t have strict regulations to follow, but they have a way of moving the process forward in a productive and positive way – dairy industry friendly.

There is however, more outcry from the agriculture sector over the past two years of the Obama Administration because of proposed rules or final regulations. Agriculture has its guard up since President Obama issued an executive order in mid-January ordering each federal agency to submit a plan outlining how it will “periodically review its existing significant regulations to determine whether any such regulations should be modified, streamlined, expanded or repealed so as to make the agency’s regulatory program more effective or less burdensome in achieving the regulatory objectives.”

Although the new order stresses the rules must be based on “objective science,’ agriculture has its doubts. Going on government’s past performance, agriculture can expect more stringent regulations in the future, not less. I would be quite surprised – but happily so – if there were any moves to reduce, or do away with certain regulations because scientific evidence proves them to be overreaching. Ag groups are optimistically hoping overreaching rules will be reviewed and corrections made. I fear the latest executive order only opens a door of opportunity for more oversight and regulation.

The Environmental Protection Agency has a lot of backpedaling to do to ease up on the overregulatory pressures being applied to the dairy and livestock industries. Steve Foglesong, president of the National Cattlemen’s Beef Assn., told Feedstuffs recently, “If there were one word to describe the first two years of President Obama’s Administration, it would be ‘regulation.’” He characterized EPA’s recent actions as a “regulation rampage,” and examples of Administration actions would “kill industry as we know it.” He cited the Grain Inspection, Packers & Stockyards Administration (GIPSA) rule as “a perfect example of government overreach into the private marketplace.”

In today’s world, government regulations do more to hinder food production than help it. These bureaucratic hurdles hinder efforts to literally feed the world. If we expect U.S. farmers, ranchers and dairy operators to feed the 9-plus billion people who will populate the world in decades to come, things in the regulatory world must change.

We need to clear away the unnecessary regulations and the red tape they create. Because in the end, a hungry world won’t ask whether their beef was raised in a pasture or feedlot. They will only be concerned about having enough food to eat – and be able to afford it.

Thanks to an unprecedented outreach and communications effort by California dairy organizations, a two-month membership drive for the Central Valley Dairy Representative Monitoring Program (CVDRMP) was a huge success.

A nonprofit organization formed in May 2010, CVDRMP is governed by a 12-member board of Central Valley dairy owner-operators. Its sole purpose is to conduct scientifically guided groundwater monitoring on behalf of its members to meet State of California regulatory requirements.

Beginning in late October 2010 and ending in late December, CVDRMP opened enrollment to all Central Valley dairy owners and operators, inviting applications at the introductory sign-up fee ($500 to join plus $81 month). While this is a significant investment, it is far less than the tens of thousands of dollars it costs to install and test wells on most dairies. Membership in the coalition is intended to serve as an alternative to a regulatory requirement – adopted in 2007 – that each Central Valley dairy install its own monitoring wells to sample and test first encountered groundwater.

Understanding the value of a cost-saving, strategic approach to monitoring, more than 880 dairies joined the coalition. This provides a solid foundation for the program’s launch, and with this very important milestone reached, there are only a few remaining steps before the program can reach final approval.

Next steps. With the successful conclusion of the initial membership drive, CVDRMP is proceeding with the next step – developing work plans for well installations. All told, CVDRMP proposes to monitor between 50 and 100 of the valley’s 1,400 dairies, with monitoring sites in at least nine counties. Monitoring is to be planned and conducted under the scientific guidance of licensed hydrogeologists, who will select dairies from among the CVDRMP membership for monitoring. The goal is to monitor dairies representing the range of different conditions under which Central Valley dairies operate, including varying soil types, management practices and other important factors.

CVDRMP expects to complete its first work plan – covering a subset of member dairies in Merced and Stanislaus counties – within a few weeks. The plan must be circulated for public comment and Regional Board approval prior to the commencement of monitoring. An additional work plan encompassing the remainder of the dairies to be monitored (in seven other valley counties) will be completed within one year.

Dairies that did not join CVDRMP remain subject to monitoring requirements. Dairies that have not chosen (and do not later choose) to join CVDRMP will be required to conduct individual groundwater monitoring. Each dairy not joining CVDRMP will eventually receive a letter from the Regional Board ordering the dairy to submit a well installation plan prepared by a licensed engineer or geologist. It is important to understand that dairies choosing independent monitoring are responsible for all the costs of preparing well installation plans, installing the wells, sampling and analysis and preparation of technical reports (for CVDRMP members, all costs related to groundwater monitoring are covered by their membership fees, but the dairy remains responsible for other regulatory costs, such as nutrient management, supply well sampling, etc.).

In late January, the Regional Board issued well installation orders to about 50 dairies. The letters allow dairies to choose between installing wells or joining an approved coalition (CVDRMP is currently the only coalition that has formally proposed to monitor for purposes of meeting the dairy regulatory requirement). Those dairies wishing to do so can still apply to join the CVDRMP – forms are available at www.dairycares.com.

Dairy Cares coalition members, including trade associations and creameries, should be applauded for their hard work and impressive communication efforts to get the word out to dairy producers about this important opportunity. CVDRMP provides another example of how today’s California dairy families can and do work together. Guided by science, they are demonstrating that we can preserve and protect the environment we all share in an efficient, cost-effective manner.

The following editorial appears in March 2011 issues of Western DairyBusiness and eastern DairyBusiness magazines

By Dave Natzke

Some of my more vocal readers have painted me – for the most part correctly – as opposed to a national milk supply management program. I’ll get to that later.

First, however, I’d like to address a new study being distributed and – I believe – selective in its presentation. The study, titled “Regional and Farm Level Impacts of the Foundation for the Future’s Dairy Market Stabilization Program,” was commissioned by the International Dairy Foods Association (IDFA) and conducted by Informa Economics. Study results were unveiled at the 2011 IDFA Dairy Forum, which I attended.

The study looked at one segment – and only one segment – of the National Milk Producers Federation’s Foundation for the Future (FFTF) dairy policy proposal, the “supply management” piece, called the Dairy Market Stabilization Program (DMSP). Simply put, during times of tight income margins for dairy farmers, DMSP withholds a percentage of milk payments from farmers who surpass their base production, as a market signal to reduce milk production.

Most dairy processors – which IDFA represents – see dairy’s milk glass as half full, and I believe rightly so. Citing market growth potential in a (hopefully) improving economy, both home and abroad, anything seen as having the potential to limit an adequate, affordable milk supply would understandably be opposed.

However, the way this study is being interpreted and presented smacks of selective reading, and would suggest a goal of perpetuating regional divisiveness among farmers.

Briefly, the Informa study concludes DMSP would have been triggered four times in the past decade (2000-2009), with milk payments withheld from affected dairy farmers during 18 months. Total dairy farmer milk payment withholdings in those months were estimated at $626 million. In 2009 alone, $390 million would have been withheld, with the majority of it, $236 million, coming from five states: Wisconsin, New York, Minnesota, Pennsylvania and Michigan. IDFA points out the payment withholdings occur in the most stressful periods to dairy farmers, depriving them of much-needed income.

The study paints a picture of “winners and losers” in the supply management debate and, perhaps not surprisingly, the losers would be producers in many states where anti-supply management sentiment is the strongest, adding fuel to the fire. Some dairy producer groups in those areas have already latched on to the study’s results.

I trust Informa’s math. However, the equation is not complete, and such a narrow interpretation of a multiple-part policy proposal is – from my perspective – disingenuous.

The 2011 Dairy Forum concluded with a discussion between IDFA’s Connie Tipton and NMPF’s Jerry Kozak. Tipton used the study’s results to suggest dairy farmers did not fully understand all the implications of a supply management program on their overall incomes.

Kozak countered the DMSP is but one piece of a bigger plan. He noted supply management deductions would not be implemented alone, but instead would work in concert with a Dairy Producer Margin Protection Program, which would provide income insurance payments in times of low margins. Those payments offset overall income declines focussed on by IDFA, likely narrowing any gap between perceived winners and losers.

I do believe a national supply management policy is also divisive, creating winners and losers. It generally preserves the status quo, protecting current milk production bases, while limiting growth potential in new areas or by new farmers. It could, for example, limit the dairy resurgence in the Upper Midwest, closer to home-grown feed supplies, which could improve producer margins, given evolving U.S. energy policies and increased global feedstuff competition.

It also hurts a state such as Kentucky, which currently offers financial incentives to not only improve milk quality, but also to increase milk production, as a means to restore a job-creating industry in a seasonally shorted milk supply region of the United States.

I also know of many smaller dairy farmers who would like to bring a son/daughter into their operation, but national supply management could economically cap a small percentage growth each year, not enough to structure a business that permits a second generation to earn a living from the family business. I’ve been told those farmers should view supply management as economic “insurance” for the new generation, preventing larger producers from getting even larger. I’ll buy that argument a bit, but insurance generally only protects current value. Nationally applied policy has little flexibility to serve the needs of an industry’s evolving individual businesses.

I get it that failing to “preserve and protect” in the economic climate of 2009 and 2010 destroys producer income and equity, creating severe harm to potential survival and growth. But I’m not yet convinced an added national supply balancing bureauracracy can adequately read market signals any better, or allow flexibility to address those signals. It also fails to account for regional differences.

And, what happens when supply management is implemented to balance national supplies, while processors and farmers in one area are short of milk, and all other areas are flush? Litigation, probably, with all the accompanying court rulings, extensions and appeals.

I do agree with IDFA’s Tipton in this regard: In a perfect world, supply management would be localized, driven by cooperatives, processors and their producer suppliers, and dependent on their production and marketing ability, capacity and potential. Milk supply controls can be set by mutual agreement and contract, rewarding marketing investment and innovation. That would require tearing down some of the “us vs. them” mentality that currently exists in the dairy industry.

Undoubtedly, the issue is even more complicated than what I’ve painted here. However, using select numbers to create acrimony by identifying “winners and losers” on one narrow piece of policy does no one any good, especially with consensus of the entire industry needed to create policies to help the U.S. industry thrive in the era ahead.